Cost of equity. You have just taken a position as chief financial officer of a large, multinational

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Cost of equity. You have just taken a position as chief financial officer of a large, multinational firm. Your first task is to find an appropriate cost of capital to apply to capital budgeting. Historically, dividend growth has averaged 3.12% and the last dividend paid was $1.02. The current stock price is $12.25. The stock currently has a beta of 0.82 and the market risk premium is 9.8%. The current T-bill rate is 3.2%.

(a) What is the estimated cost of equity using the CAPM approach?

(b) What is the estimated cost of equity using the DGM approach?

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